Apple Doomed, According to News at 11

by Adam C. Engst

The woman was young, on the short side, and exceedingly anxious. “I noticed your media badge,” she said. “Would you have five minutes for an interview about Apple?” She said she hadn’t been able to find anyone with a media badge that morning, and I got the impression that her producer had told her to come back from Macworld/iWorld with footage or not come back at all. She led me over to her cameraman and sound guy, and after she introduced them and told me what outlet they worked for — a name I lost in the hubbub of the show floor — she proceeded to ask me my opinion about the waning of Apple’s fortunes.

She didn’t put it exactly like that — I don’t remember the actual words — but the implication was clear: Apple might have come back from near irrelevance under the leadership of Steve Jobs to become the world’s most valuable company, but with Tim Cook in charge and after the last disappointing financial report, the company’s star was once again falling.

My anxious interviewer wasn’t alone — in another interview during the show I was asked much the same question, and in each case, I had to resist saying, “Are you high? What could you possibly be smoking to see $54.5 billion in quarterly revenues and $13.1 billion in profit as a sign of impending doom?” (For full details of Apple’s “disappointing” financial results, see “Apple’s $13.1 Billion Profit for Q1 2013 Dismays Analysts,” 23 January 2013.)

This was fascinating — I’m no fanboy, but I can’t see any way that Apple’s Q1 2013 financial report could be viewed as a bad thing, at least unless you’re an analyst whose reading of bird entrails caused you to predict unrealistic earnings. Don’t get me wrong — Apple is far from perfect, and even at a business level, there have been some missteps of late.

For instance, after being announced in October 2012, the latest model of the iMac didn’t ship in time for much of the holiday buying season, which seems like a glaring operational lapse. Even now, you’ll wait 2–3 weeks for a 21.5-inch iMac and 3–4 weeks for a 27-inch iMac. Of course, we (and the same is true of analysts) don’t know why this happened. Did Apple’s executives choose to pre-announce a Mac they knew they couldn’t deliver in time to prevent potential buyers from purchasing something else? Or perhaps they were taken unawares by manufacturing problems or supply shortages? The latter seems increasingly likely given the continued delays.

Similarly, Apple admitted that it hadn’t been able to make all models of the iPhone and the iPad mini fast enough during the quarter to meet demand, which had to hurt sales. Was that because Apple failed to line up enough manufacturing capacity, which seems unlikely given their experience with iPhone launches by this point? Or were the problems actually insurmountable due to parts shortages or the lack of sufficiently advanced manufacturing capabilities? (The iPhone is known to be difficult to manufacture due to its extremely tight tolerances.)

But while these operations-related problems are both surprising — Tim Cook has a reputation as an operations genius — and troubling, I believe it’s overreaching to attribute a significant corporate downturn to such issues, at least at this point. If the company continues to stumble with bringing products to market, a notable problem for Apple many years ago, there would be cause to worry, but basing anything on a single quarter’s results is silly.

Though I may never know what will eventually come of these interviews, I did appreciate the opportunity to point out that Apple does suffer from some concerning problems that haven’t gotten as much press. These worries aren’t likely to affect the stock price in the short term, but could have long term consequences. I’m talking here about the drop in software quality over the last year or two, and Apple’s capricious and draconian policies surrounding its relationship with developers and publishers.

In terms of software quality, we’ve noticed significantly more problems over the last few years, with more (and more-troubling) bugs in iOS 6 than any previous version of iOS in particular. Our articles about issues with excessive cellular data usage and battery drain continue to garner comments from people who are struggling with their iPhones, and while we hope iOS 6.1 has finally addressed them — four months after iOS 6 shipped — it’s still too early to tell (see our series “Problems with iOS 6”).

Plus, one long-time industry friend said that in some developer circles, it was generally agreed that Mac OS X 10.6 Snow Leopard was the high-water mark of stability, and that the integration of sandboxing and iCloud in 10.7 Lion and 10.8 Mountain Lion had caused increased flakiness. Another friend with contacts inside Apple told me that some long-time engineers had been leaving for other companies, in part because they felt their software was being shipped before it was ready.

Although no developer wanted to go on the record about this, I heard story after story of Apple’s App Store policies and behaviors causing significant headaches. One developer told me of the nightmare caused by the App Store actually removing necessary files from his approved app, such that it basically didn’t work at all, and of the trouble and reputation hit that caused when he couldn’t respond to complaining customers.

Another developer related the fascinating tale of joining forces with a programmer with an existing app — the two formed a new company and tried to update the EIN (the employer identification number that uniquely identifies a company for tax purposes in the United States) in the original programmer’s iTunes Connect account. The interface wouldn’t let them, and when they queried Apple, they were told that it’s not possible to change the EIN. To get the business details right for their new company, they were told they would have to delete the original app and resubmit from a new iTunes Connect account. Anyone familiar with the App Store sees the problem here — the 10,000-plus customers of the original app were orphaned, and the
new app lost the roughly 1,000 positive reviews garnered by the original app. The only workaround was to update the original app to display an alert prompting users to download the new app for free on a particular day, but fewer than 10 percent of the customers saw that in time, generating hundreds of support requests and requiring additional free download days.

(When I asked the obvious question, I was also told that it’s not possible to transfer an app between iTunes Connect accounts, a fact that reduces the value of apps on the resale market and thus changes the economics for app developers or companies looking to be acquired.)

Apple’s refusal to allow paid upgrades also came up in conversation. Since it’s thoroughly unreasonable to expect developers to give out upgrades for free forever (sales to new users always tail off after the initial release), most have gone the route of releasing a completely new app, orphaning the users of the previous version and offering discounted “upgrade pricing” to everyone for some time after release. It’s an awkward set of hoops to jump through, and encourages many developers to release numerous new apps rather than put in effort over time to improve a given app over multiple major releases.

If I had to speculate, I’d say that Apple’s amazing success over the past five or six years has effectively blinded the company to these problems, or, to be more charitable, that the success has resulted in Apple prioritizing software quality behind hardware quality and predetermined ship dates, and in sticking with a set of App Store policies that no company in a less dominant position could ram down developers’ throats.

I’m not about to describe Apple as “beleaguered” or suggest that the company won’t be able to maintain its profitability or industry position (though its growth curve will flatten out — no company can grow at Apple’s recent rate forever). But even though pointing out these concerns is not a case of the emperor’s new clothes, ignoring them or focusing only on analyst expectations and stock price is definitely a case of failing to acknowledge the emperor’s wardrobe malfunction.